Ford is rolling out a risky strategy
The U.S. auto industry might be in crisis and Big Three executives might be appealing to Congress for a $25-billion bailout, but judging by Ford Motor Co.’s plans for this week’s L.A. Auto Show, Detroit’s No. 2 carmaker seems to be feeling just swell.
Even as General Motors Corp. and Chrysler have scrapped plans to introduce any vehicles at the L.A. event, Ford is unveiling no fewer than six: the Ford Fusion, Fusion hybrid, Mercury Milan, Milan hybrid, Lincoln MKZ and the 2010 Mustang.
That’s a big number of introductions for any show, even in a good year for auto companies, which 2008 most decidedly is not: Ford’s sales are down 18.2% through October, worse than the industry as a whole, compared with last year.
What’s more, Ford is considering as many as five more product launches at the Detroit auto show in January, and company executives describe a product pipeline that’s jammed through 2010. Ford even opened a new shift at its F-150 plant in Dearborn, Mich., this month to pump out big quantities of the redesigned pickup.
Such an onslaught of sheet metal from Henry Ford’s car company in a time of industry bloodletting is raising some eyebrows. Do people at the Dearborn, Mich., company know something nobody else does?
Ford’s strategy is risky because it is tying up billions of dollars in future product at a time when low consumer confidence and frozen credit markets have made for the worst new-car sales in this country in 17 years. If Ford can’t pay its bills, a garage full of promising new cars is useless.
Ford Chief Executive Alan Mulally isn’t oblivious to the dangers. Flanked by the heads of GM and Chrysler, he told a Senate panel Tuesday that he supported a bailout because he feared “the prospect of further deteriorating conditions in 2009.”
On Tuesday, the company said it would sell a roughly 20% stake in Mazda Motor Co. for $540 million, a fire-sale price that supports the predictions of many analysts that Ford could run out of cash before many of its new products are even released.
“I don’t see Ford’s position as all that different than Chrysler’s and GM’s,” said Jim Hossack, vice president of industry consultancy AutoPacific Inc. “I think all three are in an absolutely desperate position.”
He and others with similar opinions base their analysis on the fact that Ford lost $11.1 billion in the first nine months of the year and, with no access to credit, burned through $7.7 billion in cash in the third quarter, or about $2.6 billion a month. That’s an even faster burn rate than GM, which has said it would probably run below minimum capital levels as soon as the first quarter of next year.
Ford would be in much worse straits had it not mortgaged practically the entire company, including the familiar blue Ford logo, to borrow $23 billion in late 2006. GM, which did not borrow at the time, has tried and failed to do so this year.
“Ford’s masterstroke was to borrow that money,” said Sean McAlinden, chief economist at the Center for Automotive Research. “But they’re still on a path to lose money through 2011.”
As part of its cost-cutting measures, GM canceled its plans for a news conference at the L.A. show last week and will not be flying any Detroit executives out for the event. Chrysler isn’t even paying for its own display at the show, instead sloughing the cost off on local dealers. Even relatively healthy Toyota Motor Corp. and Honda Motor Co. are planning to keep things clean and simple this week, with only a few product “introductions” between them, including some that have already been shown elsewhere.
Ford has cut costs too -- shedding some 51,000 jobs and closing or idling 17 plants in the last few years -- but the company doesn’t seem to be pinching too many pennies in L.A. this week.
The automaker kicked things off Tuesday with a huge event in Santa Monica to unveil the 2010 Mustang. The car sells better in California than any other state, the company said, and Mustang groupies attending were greeted by a display of dozens of the muscle cars, one for each year it has been produced, as well as appearances from legendary drivers Carroll Shelby and Jack Roush.
Today, Ford plans to introduce its redesigned mid-size sedans, the Fusion and Milan, as well as first-ever hybrid versions of each, plus the updated Lincoln MKZ luxury sedan.
The Fusion and Milan hybrids will double the company’s lineup of alternative-powertrain vehicles. Currently, Ford makes the Ford Escape hybrid and the Mercury Mariner hybrid. Ford expects the new sedan hybrids to get 39 miles per gallon in the city -- six miles per gallon better than the Toyota Camry hybrid.
George Pipas, chief sales analyst for Ford, said the company simply had to get the product out sometime. “I suppose we could wait until Detroit, but I don’t know that the situation is going to be much better in January,” he said, suggesting that industry hopes for a bailout this week are dim.
But it also reflects Ford’s confidence that the 105-year-old firm will be around to sell the things a few years from now.
Beyond the models appearing this week in L.A., Ford is working on a Lincoln crossover vehicle, the MKT; a series of turbocharged, high-efficiency engines to be put in vehicles like the Lincoln MKS; and a redesigned Ford Taurus. In 2010, it will begin selling the Ford Fiesta subcompact in the U.S., the first of as many as six European-designed, fuel-saving vehicles it plans to bring here.
GM, on the other hand, has been dramatically cutting back on product development, eliminating much of its spending on new designs for the next two years, except for a few marquee products such as the electric hybrid Chevrolet Volt, due out in late 2010, and the Chevrolet Cruze, a fuel-efficient sedan that will launch in Europe.
Chrysler, meanwhile, has little coming in terms of new vehicles. Its first hybrids, the Dodge Durango and Chrysler Aspen, were due out this fall but never made it to dealer lots because the firm stopped production at the plant that made them and their non-hybrid cousins. The firm recently introduced two plug-in hybrid prototypes, plus an all-electric vehicle, but said that production models wouldn’t come until 2010.
For Ford, apparently, that spells opportunity.
“We have reduced production. We have further reduced employment. We have eliminated all raises and all bonuses through 2009,” Mulally told the Senate Banking Committee. “We took these measures while protecting the heart of our company, the new vehicles that will secure our future.”
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